Mergers help nonprofits survive

Firms in nearly every service industry – from accounting and medicine to insurance and law – have merged in recent years in an effort to decrease overhead and create economies of scale. Increasingly, the nonprofit industry is getting in on the action.

According to the 2012 Long Island Not-for-Profit Survey, conducted by the Bohemia accounting firm Cerini & Associates, 5 percent of organizations were involved in a merger, and another 19 percent were considering it.

In an economy in which only the smartest and most efficient may survive, it makes a lot of sense for chapters of a nonprofit organization to come together, said Ken Cerini, managing partner of Cerini & Associates.

“At the end of the day, the Island is not that big of a place. There are too many nonprofits on Long Island all vying for the same resources,” he said.

Organizations are realizing more competition and less federal and state funding requires them to come up with alternative ways to cut costs, Cerini said. Last year, Gov. Cuomo released an executive order, which goes into effect April 1, putting limitations on administrative spending and executive compensation for nonprofits. Any nonprofit receiving state funding will be impacted, Cerini said.

“There needs to be a certain level of consolidation within the marketplace,” he said.

In July 2011, the Nassau and Suffolk chapters of the American Red Cross combined to form the American Red Cross on Long Island. More recently, the Metro New York and Western New York chapters of the Make-A-Wish Foundation completed their first year of realignment as a single chapter.

When first considering the consolidation, Pat Clemency, president and CEO of Make-A-Wish Metro New York and Western New York, said she looked at the merger the same as any business in the for-profit world would: “What is our core mission and how can we achieve that mission at the highest level of quality in the communities without redundancies?”

Prior to merging with the Metro New York chapter, the Western New York chapter struggled financially, Clemency said. One year before the consolidation, the Western New York chapter needed to seek $300,000 in outside funding to fulfill its wishes; by August 2012, following the merger, “not a dollar of outside funding was needed,” Clemency said.

One of 61 Make-A-Wish chapters nationwide, the Metro New York and Western New York chapter now covers 23 counties and fulfills two-thirds of the wishes in New York state, Clemency said.

“We put together a more seamless organization,” she said, noting the chapter now maintains one board of directors, as well as single finance, information technology and integrated communications and marketing departments.

“We’re not going to spend a dollar we don’t have to on back-office operations,” Clemency said. With its headquarters in Lake Success, the chapter has offices in Manhattan, Buffalo and Rochester.

Rather than entering into the merger questioning what her individual chapter would be giving up, Clemency said she shifted the thought process to what both chapters could gain. The merger allowed “both of us to come to a very different place than we could have gotten to on our own,” she said.

Naturally, however, communities were concerned about the organization maintaining its local presence. After “over-communicating their intent,” Clemency said people have come to understand the chapter has built a more sustainable local presence, widening its network of people and resources. The merger has enabled the chapter to revise its business plan with a greater emphasis on its local markets, attracting new leaders and funding sources, she said.

The importance of maintaining a community presence is crucial to a successful merger, Cerini said. While different communities speak different languages, organizations need to maintain that community flavor, as well as its localized community service and outreach while growing, he said.

“Consolidation tends to pull people out of the community; organizations need to understand they have to stay in the community,” Cerini said.

Financial resources, too, need to remain in the communities, and be maximized to help local families, according to Mary Ann Malack-Ragona, executive director and CEO of the Alzheimer’s Disease Resource Center in Bay Shore. The draining of its local resources was one reason the former Long Island chapter of the Alzheimer’s Association, of which Malack-Ragona was CEO, split from its national organization last year, bucking the trend of nonprofits coming together.